Fitch affirms Slovakia at A+, outlook stable

By bne IntelliNews November 18, 2013

Fitch Ratings has affirmed Slovakia's long-term foreign and local currency issuer default ratings (IDRs) at A+ with a stable outlook, the ratings agency said in a statement. The issue ratings on Slovakia's senior unsecured foreign and local currency bonds were also affirmed at A+. The country ceiling is affirmed at AAA and the short-term foreign currency IDR at F1.

Fitch said that Slovakia’s eurozone membership is beneficial to its economic development as it promotes a robust institutional framework, expands its export sectors and improves prospects for inward investment. EMU membership also limits balance of payments and exchange rate risks.

According to the ratings agency, Slovakia's real GDP growth remains one of the strongest in the eurozone and among Central and Eastern European countries.  In May, ​Fitch revised down its real GDP growth forecast for Slovakia to 0.8% for 2013 from 1.2% due to the impact from weaker eurozone growth in H1 2013, but the agency expects growth to recover to 2.2% in 2014.

Earlier in November, the European Commission also revised down its 2013 GDP growth forecast for Slovakia to 0.9% from 1%. The commission expects the country’s GDP to grow by 2.1% next year and by 2.9% in 2015.

According to Fitch, the solid banking sector remains a key strength of Slovakia's ratings. Net lending by Slovak foreign subsidiaries to their West European parent banks was facilitated by a strong domestic funding base. The rating agency said that the average capital adequacy ratio is high at 16.9% and the ratio of loan-to-deposits is conservative at 89%.

Improved external finances also support Slovakia's ratings. Fitch expects the country to maintain its current account surplus over the forecast horizon. This would help contain Slovakia's gross and net external debt ratios, which are at 77% and 31% of GDP respectively – higher compared to A peers of 50% and -16% respectively.

The country’s fiscal consolidation progress suggests that the country will be able to maintain its budget deficit below 3% of GDP by end-2013. However, Fitch continues to highlight the sovereign's reliance so far on one-off revenue measures to reach fiscal targets, rather than on more sustainable consolidation of public expenses.

Fitch also said that the government remains vigilant on keeping the debt-to-GDP ratio below the constitutional debt ceiling of 57%. Compared to the eurozone's average debt-to-GDP ratio of 91%, Slovakia's public debt ratio is significantly lower, although worse than A and AA-rated medians with debt ratios of 38% and 27% respectively, Fitch said. However, if economic growth is weaker-than-expected, this would pose a risk to public finances.


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